Question

Kunkel Company makes two products and uses a conventional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow:
Mercon Wurcon
Direct materials cost per unit $ 10.00 $ 8.00
Direct labor cost per unit $ 3.00 $ 3.75
Direct labor-hours per unit 0.20 0.25
Number of units produced 10,000 40,000
These products are customized to some degree for specific customers.
Required:
1. The company's manufacturing overhead costs for the year are expected to be $336,000. Using the company's conventional costing system, compute the unit product costs for the two products.(Do not round intermediate calculation. Round your final answers to 2 decimal places.)
Mercon Wurcon
Unit product cost $ $
2. Management is considering an activity-based costing system in which half of the overhead would continue to be allocated on the basis of direct labor-hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year:
Mercon Wurcon Total
Engineering design time (in hours) 4,000 4,000 8,000
Compute the unit product costs for the two products using the proposed ABC system.(Do not round intermediate calculation. Round your final answers to 2 decimal places.)
Mercon Wurcon
Unit product cost $ $

Answer 1

Answer:

Part 1

Computation of the unit product costs for the two products

                                                         Mercon              Wurcon

Direct materials cost per unit         $ 10.00               $ 8.00

Direct labor cost per unit                 $ 3.00                $ 3.75

Overheads                                         $5.60                 $7.00

Unit product cost                             $18.60               $18.75

Calculation of overhead rate

M = 0.20 × 10,000   = 2,000

W = 0.25 × 40,000 = 10,000

Total hours                       = 12,000

Rate = $336,000 ÷  12,000

        = $28.00

Part 2

Overhead rate for direct labor-hours

Rate = $168,000 ÷ 12,000

        = $14.00

Overhead rate for engineering design time

Rate = $168,000 ÷ 8,000

        = $21.00

Computation of the unit product costs for the two products

                                                         Mercon              Wurcon

Direct materials cost per unit         $ 10.00               $ 8.00

Direct labor cost per unit                 $ 3.00                $ 3.75

Overheads - labor hrs                       $2.80                 $3.50

Overheads - eng time                       $8.40                  $2.10

Unit product cost                             $24.20               $17.35